Efficient regulation for Mexico’s upstream

April 29, 2022

Rogelio Hernández Cázares, president-commissioner of the National Hydrocarbons Commission (CNH), talks to The Energy Year about how the CNH is encouraging investment and collaboration in Mexico’s upstream sector and maximising the value of the country’s oil and gas. The CNH is responsible for regulating Mexico’s hydrocarbons sector, as well as conducting research and promoting investment.

This interview is featured in The Energy Year Mexico 2023

What key levers is the CNH targeting to maximise the value of the nation’s hydrocarbons sector?
Within the strategic objectives of the CNH, two key elements are especially relevant in the framework of the current administration’s energy policy: the increase in hydrocarbons production and the restitution of reserves. Regarding production, during 2021 the average output was 1,665,000 bopd, remaining stable compared to the 2020 figure of 1,663,000 bopd.
In our analysis of prospective production at the end of the previous year, considering the base scenario, a gradual rebound in production is expected over the next three years. If this situation materialises, production will reach a level of around 1,900,000 bopd in 2024.
As for the evolution of 3P reserves, these remained stable as well. They reached 22,847,000 boe as of January 1, 2021. However, in this case, the indicator to be highlighted is the integral restitution rate of 1P reserves – the percentage of the volume of hydrocarbons extracted that is replenished by incorporating discoveries, delimitations, developments and revisions to reserves. While in 2019 this rate was 36.6%, in 2020 it reached 118.9%, and in 2021 it stood at 91.5%.

What are the commission’s objectives when ensuring the proper management, regulation and technical supervision of the different developments in E&P?
As of today, the commission rules on the development plans for hydrocarbons extraction in allocations [PSCs] and contracts. To guarantee the correct management, regulation and technical supervision of the different developments in the E&P sector it makes sure the development plans comply with the following terms: a technology and production plan that allows maximisation of the recovery factor in economically viable conditions; a programme for natural gas exploitation; and mechanisms to measure hydrocarbons production.
But above all, it ensures that administrative processes related to hydrocarbon extraction activities are carried out in accordance with the principles of transparency, honesty, certainty, legality, objectivity, impartiality, effectiveness and efficiency.

 

Which were the latest CNH deepwater development plans approved in 2022?
In 2021, and so far in 2022, two modifications to deepwater exploration plans have taken place, one by PC Carigali and one by Shell. As for the former – contract CNH-R02-L04-AP-CS-G07/2018, operated by PC Carigali – a modification was made to include prospects which were not visualised and are part of the exploratory portfolio. The operator will decide which of its seven current prospects will be drilled in 2022. Moreover, the total investments for the remainder of the plan are approximately USD 77 million.
As for the contract CNH-R02-L04-AP-CS-G04/2018, operated by Shell, a modification was made to include a deeper target in the exploration strategy. The operator will drill the well this year, with an option to go to the deeper target. Total committed investment for the remainder of the plan is approximately USD 53 million.

What role does the commission take in promoting collaboration and synergy among different entities in the E&P arena?
The CNH’s strategy includes an international networking agenda that aims, among other things, to identify best practices and generate collaboration systems with various regulatory bodies and entities. In this sense, the agenda contemplates the commission’s participation in meetings and forums to monitor topics of interest. A clear example of collaboration and synergy is the fact that the CNH is part of the Network of Economic Regulators (NER) of the Organisation for Economic Co-operation and Development (OECD).
On the other hand, the CNH is part of the Ibero-American Association of Energy Regulators (ARIAE), and last year it participated in the workshop “How have Ibero-American countries faced the energy crisis caused by Covid-19?” The objective of this workshop was to gather information, both regulatory and statistical, for a comparative study – funded by the Inter-American Development Bank (IDB) and the Ibero-American School of Regulation (ISR), on the effectiveness of the regulatory response to the Covid-19 pandemic.

By what means is the CNH encouraging investment in Mexico’s upstream sector?
The commission seeks and encourages investment in the sector through two main axes: knowledge generation and management in the field of hydrocarbons exploration and extraction, and a transparent regulation of its activities.
Information on hydrocarbons exploration and extraction activities is kept and managed by the commission’s National Hydrocarbons Information Center (CNIH). The use of technical information is subject to licensing processes, which may be carried out with oil companies, governmental entities, academic institutions and other interested users. The CNIH guarantees access to information through transparent legal instruments, generating greater subsurface knowledge, providing incentives for exploration and extraction activities in the country, mitigating environmental impact and encouraging new investment in the sector.
Public information is updated on a regular basis in accordance with best practices in transparency and disclosure. Reports and interactive web applications are tools that allow the general public to consult specific information according to their interests. Information is also available so that national supply companies and local governments can learn about the input requirements of prospective exploration and extraction activities. With this, they can identify possible business opportunities in the industry. The CNH promotes and encourages the integration of Mexican companies into the oil industry’s production chains.
The information managed by the CNIH is used for decision-making by the commission, other governmental institutions and oil operators. This allows for a better evaluation of oil projects and enriches the prospective knowledge of the hydrocarbon industry.
Moreover, the regulations issued by the CNH take international standards as a reference. They also incorporate continuous regulatory improvement processes, with the participation of advisory councils made up of federal institutions, associations and companies. The regulatory model guarantees certainty, administrative simplification and the creation of incentives for operators so that they can generate integrity and productivity and maximise the value of their projects for the benefit of the country.
Hence, the commission supervises to ensure that those regulated comply with technical and economic standards, with the objective of maximising value and promoting the incorporation of hydrocarbons reserves.

What strategies and objectives have been set for the CNH for 2022?
The CNH contributes to the fulfilment of the country’s energy policy guidelines through the implementation of the Institutional Strategic Planning (PEI), which has several objectives. Firstly, it aims to guarantee the maximisation of the value of the nation’s hydrocarbons. Secondly, it promotes the increase of hydrocarbons reserves and the country’s oil potential. Thirdly, it intends to strengthen the technical advisory and knowledge generation capacities of the energy sector. Fourthly, it sets out to ensure the continuous improvement of the regulation of hydrocarbons exploration and extraction. And finally, it aims to guarantee an efficient and quality service to the regulated entities, among others.
Within its portfolio of strategies linked to these objectives, in general terms, the commission is making progress in meeting its goals. These include developing a methodology for reserves and contingent resources; designing and formalising various monitoring and supervision processes for allocations and contracts; developing a methodology to evaluate prospective resources – conventional and unconventional; and standardising mechanisms for receiving and distributing information, among others.
In 2022, the CNH continues to work in accordance with the regulatory framework applicable to the National Development Plan’s Energy Sector Programme 2020-2024. This is based on the energy policy guidelines and its institutional strategic planning.
The commission works independently in technical terms and operates in that dynamic. From generating and publishing data to regulating the multiple activities of the industry, the CNH supports the federal government and the industry with an eminently technical perspective, focused on its mission “to efficiently and reliably regulate hydrocarbons exploration and extraction to promote investment and economic growth in Mexico.”

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